#new car prices
By David Zalubowski, AP
The bank says that’s because financing costs have been increasing and because consumers have used incentives to upgrade their vehicle choices.
Comerica says it took 26.2 weeks’ worth of an average person’s salary to buy a new car in the third quarter, up nearly six weeks from the second quarter of 2004, which was the most affordable period in 25 years. The index has been slowly creeping up this year, but the third-quarter jump was the biggest in years.
The average price of a new vehicle was $27,958, including financing charges, up 6% from a year ago, Comerica says.
Interest rates on car loans have gone up a full percentage point since the beginning of the year as the Federal Reserve has raised rates, says Dana Johnson, chief economist for Comerica Bank. The 1 percentage-point increase amounts to about $250 annually for a $25,000, five-year loan.
The other factor affecting the index was that car buyers purchased more expensive vehicles than they had been. “It’s certainly not surprising that financing costs have gone up,” Johnson says. “What surprised me is that the average amount spent per car rose quite significantly in the third quarter.”
Johnson says domestic automakers’ employee discount pricing, which lasted most of the summer, appears to have lured in people who might have bought more expensive cars and trucks later in the year. Auto sales plummeted in October as automakers attempted to retreat from heavy incentives.
General Motors this week fired up another discount program, called the Red Tag Sale, that posts the bottom-line price of the car on a prominent tag. Ford Motor said Wednesday that it would follow suit, calling its no-haggle program “Keep It Simple.”
Paul Taylor, economist for the National Automotive Dealers Association, says the trend toward rising vehicle prices will dramatically reverse in November and December because automakers have added $4,000 to $9,000 discounts to many slow-selling models.
Johnson says he was holding out hope that the automakers, particularly GM, would refrain from offering big year-end deals. “They’re just like a poker player who doesn’t have many chips. They cave in at the least resistance from consumers,” he says. “All that’s happening is they’re training customers to wait for the next deal. It’s so self-defeating.”